FMCG distribution is still tough: Varun Berry3 min read . Updated: 20 Jul 2020, 08:30 PM IST
Britannia MD talks about the company's capex plans and how its consumers are positioned during pandemic
Britannia Industries Ltd. posted strong numbers in the three months ended June 2020, with revenue growth of 26% year-on-year against the backdrop of covid-led disruptions. In-home consumption of its bread, cheese, rusk and cookies drove sales for the maker of Tiger biscuits and Goodday cookies. The company’s managing director Varun Berry spoke of the plans to build capacity as consumers drive up demand for its dairy and bakery products. Edited excerpts from an interview:
Has covid-19 altered Britannia’s investment plans for FY21?
When this whole thing started, we had thought that we had to be careful with our investments and we need to make sure we don't invest till we are very clear about where it is going. But now it seems that it will be very difficult for us to manage the business going forward if we don't have the right capacity. So we will require three new plants and some enhancement of current facilities as well.
We are looking at putting one plant in Uttar Pradesh, one in Bihar and one in Tamil Nadu and enhancing our manufacturing capabilities in Odisha as well as in Ranjangaon in Maharashtra.
We had signed an MoU with the government in Tamil Nadu, but we hadn't really gone ahead with it. Now we will. In these plants alone, the investment will be over ₹700 crore in the next two-and-a-half years. These (plants) will mostly be for our existing products.
For new launches and new products, I would think there would be another ₹300 crore of investments going in, including dairy, in the next 2-2.5 years. So the total investment could be over ₹1,000 crore.
Is it fair to say that covid has brought forward your plans?
Did biscuits drive the snacking category for you in the last three months?
It was biscuits, but all of the other products also. The biggest growth was in cheese. Bread was a very large growth for us. So bread and cheese were the highest-growing. Rusks grew more than biscuits. Cakes, which go into children tiffins, was slow. That’s how it panned out —impulse, and on-the-go categories were slow. Home consumption categories was higher.
Has covid-led disruption driven up cost of doing business?
There are areas where cost of doing business went up. And there are areas where we were able to optimize and find efficiencies. Obviously, the latter was more than the former and that’s why our margins grew so much. The growth in margins is 670 basis points—all of that is not going to stay. Half of it is going to go right back in. Spending on advertising cannot be postponed. As soon as we have more products, we will start advertising. But we are going to make some things our theme and make sure that we dig deeper and find other ways of finding efficiencies and bring more cost savings to the table.
Would you say situation on ground for FMCG distribution has improved?
It is a tough situation. If you look at it, a lot of the malls and modern trade stores are shut. So the modern trade business is taking a beating, the alternate channels which is railways, airways, hotels, motels, all of that is completely shut. As far as traditional trade business is concerned, there are logistical issues of getting products to them. So I won't say it is business as usual. It is challenging to do whatever we were doing before covid, in these times. But hats off to our team.
How has online channel performed for you?
That is doing extremely well. E-commerce isn’t a very large business for us. It used to be 0.4% of our total business, it has gone to just over maybe 1% now but growing very fast. Because people who have never done online shopping are getting used to buying stuff online. That is a trend which is going to be staying with them.
What is going to be India’s consumer demand template going forward?
The overall sentiment…it’s a very tough situation that consumers are in. So they are making certain choices. The economy is a little fragile at this point of time. I’m hoping India will be able to get out of this situation very quickly. Because Indians are fairly resilient, the economy is also reasonably resilient in the long-term. But at this point of time, it is looking a little fragile, so let us hope for the best.